Multiple Choice
In the context of a production function, what does the law of diminishing marginal returns state?
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10. The Costs of Production
The Production Function and Diminishing Returns
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Suppose a firm's production function is given in the table below. At which number of workers does diminishing marginal product begin?| Number of Workers | Total Output ||-------------------|-------------|| 1 | 10 || 2 | 25 || 3 | 45 || 4 | 60 || 5 | 70 |
A
After hiring the 3rd worker
B
After hiring the 4th worker
C
After hiring the 2nd worker
D
After hiring the 5th worker
Verified step by step guidance1
Understand that the marginal product of labor (MPL) is the additional output produced by hiring one more worker. It is calculated as the change in total output when the number of workers increases by one.
Calculate the marginal product for each additional worker using the formula: \(MPL_n = Total\ Output_n - Total\ Output_{n-1}\), where \(n\) is the number of workers.
List the marginal products for each worker: for example, \(MPL_1 = Total\ Output_1 - Total\ Output_0\) (assuming \(Total\ Output_0 = 0\)), then \(MPL_2 = Total\ Output_2 - Total\ Output_1\), and so on.
Identify the point where the marginal product starts to decrease compared to the previous worker. This point indicates the beginning of diminishing marginal product.
Conclude that diminishing marginal product begins after the worker where the marginal product first declines from the previous marginal product value.
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